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What Employers Need to Know About Whistleblowers and Retaliation Claims

Under the Securities and Exchange Commission’s current whistleblower program, a whistleblower who shares information that leads to an SEC enforcement action is awarded between 10 and 30 percent of the money the SEC recovers. Last summer, the SEC proposed new rules. While a whistleblower’s award under the new rules still would fall between 10 and 30 percent of the funds collected, the Commission would be permitted to cap any award that otherwise would pay the whistleblower more than $30 million. At the same time, the SEC would reserve the right to “adjust upwards any awards that would potentially be below $2 million to a single whistleblower.”

The SEC also is considering redefining the term “whistleblower” to align with the U.S. Supreme Court’s opinion that legal protections do not cover employees who report suspected securities law violations to employers, but not to the SEC.

Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, more commonly known as the Dodd-Frank Act, authorized the SEC to disburse awards as incentives for employees to expose employers’ illegal misconduct. It also forbade employers from retaliating against these so-called “whistleblowers.”

Whistleblowers have enjoyed protections under the law since the days of President Lincoln, who signed the anti-fraud False Claims Act into law in 1862. And the U.S. Department of Labor reports that, since the passage of the Occupational Safety and Health Act in 1970, Congress has expanded OSHA’s whistleblower authority to protect workers from retaliation under 22 federal laws.

Essentially, these laws prohibit an employer from taking “adverse action” against workers who report injuries, safety concerns, unlawful discrimination, fraud and other protected activity. The DOL says any of the following employer actions toward whistle-blowing employees would be considered retaliatory if they were taken in response to the employee’s tips or complaints:

Firing or laying off

Blacklisting

Demoting

Denying overtime or promotion

Disciplining

Denying benefits

Failing to hire or rehire

Intimidating or harassing

Making threats

Reassigning the employee to a role that affects his or her prospects for promotion

Reducing pay or hours

Workplace retaliation claims have nearly tripled over the last 10 years. Besides now being among the most frequent claims employees make against employers, these cases are notoriously difficult to defend in court. Employees who win their lawsuits against employers may be awarded lost pay, pain and suffering, punitive damages and attorneys’ fees and costs – all of which can add up to huge financial exposure for a small or medium-sized business.

For the sake of their employees and their businesses, employers should do all they can to create a non-retaliatory workplace culture.

Avoiding Retaliation Claims

Once an employee makes a complaint – even if the complaint is without merit – he or she is in a protected category. The most obvious way to mitigate the risk of retaliation lawsuits is, simply, not to retaliate. Treat employees who have complained the same way you treat any other employee.

To encourage non-retaliation and foster a culture of compliance, follow these best practices:

Establish an ethics policy that:

Clearly states the company’s intention to comply with all legal obligations, including anti-retaliation and whistleblower protection laws

Encourages employees to report misconduct

Includes a complaint reporting procedure – preferably one that allows employees to remain anonymous

Promises complaints will be thoroughly investigated

Assures employees whose identities are known that the company will not retaliate against anyone who complains in good faith

Train employees regularly on applicable laws. Provide additional information to managers about how to recognize the difference between a legitimate and a frivolous complaint and appropriately respond to whistleblower activity.

Document all employee performance and conduct problems that would justify future disciplinary actions or termination. This documentation becomes even more important if the employee in question has been or later becomes a whistleblower who could try to claim employer retaliation.

Promptly document and investigate any employee complaint, making it clear you’re taking the complaint seriously. As the investigation progresses, record the steps taken to resolve the complaint and the follow-up actions that have been or will be taken.

When you clearly communicate to employees that neither illegal activity nor actions against whistleblowers will be tolerated, you reduce the legal risks and financial exposure retaliation claims may pose.